By Hung Ou Yang
Since 2018, the dividends paid by Taiwanese corporations to foreign investors will be subject to a 21% withholding tax because of the tax law amendment. It is a 1% tax rate raise when the original withholding tax rate was 20% in 2017 and before.
As Taiwan has already signed agreements for the avoidance of double taxation with 32 countries in the world, it is important to take advantage of the tax agreement when the foreign investors are eligible to enjoy a lower tax rate regarding dividends, interest, and royalties.
Take the tax agreement between Taiwan and Luxembourg in 2014 for example, it provides that the tax rate shall not exceed 15% for the dividends paid to "a resident of the other country" "if the beneficial owner of the dividends is a collective investment vehicle established in the other country and treated as a body corporate for tax purposes in that other territory."
In addition, the tax rate shall not exceed 10% for the dividends in all other cases. However, it does not necessary mean that the Luxembourg collective investment vehicle, which is not clearly defined in the tax agreement, and all the other Luxembourg nationals and corporations, can automatically enjoy the lower tax rate as provided in the tax agreement.
To take advantage of the tax benefits, the Luxembourg residents must submit the Resident Certificate issued by the Luxembourg tax authority and documents identifying them as the beneficial owner of the dividends, interest, and royalties, to the tax withholder. The tax withholder, for example, the Taiwan company which is paying the dividends, then shall file the tax return with the applicable articles of the tax agreement and the documents provided by the Luxembourg residents for the tax benefits. See Section 2 of Article 15 of Regulations Governing Application of Agreements for the avoidance of Double Taxation with Respect to Taxes on Income.
Moreover, a foreign institutional investor in Luxembourg which invests in Taiwan securities by fund or by the means of sales contracts or trust contracts with Taiwan residents has to prepare more documents for the dividends and interest derived in Taiwan before enjoying the tax benefits. The required documents are:
Currently Taiwan has signed tax treaties with the following countries, providing the relevant tax benefits: Australia, Austria, Belgium, Canada, Denmark, France, Gambia, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, Kiribati, Luxembourg, Macedonia, Malaysia, New Zealand, Netherlands, Paraguay, Poland, Senegal, Singapore, Slovakia, South Africa, Swaziland, Sweden, Switzerland, Thailand, UK, Vietnam. Since the required documents are complicated and must be notarized and certified, it is better to seek the legal advice of a Taiwanese law firm.
If you have any question, you may contact BT International Law Firm at +886 2 2707 9976
Hung Ou Yang, Esq. is the Managing Attorney of Brain Trust International Law Firm, and specializes in handling transnational legal disputes, business and white collar crime, business litigation, and the negotiation and drafting of international agreements. Hung Ou Yang has successfully resolved many high-profile civil, criminal, and transnational disputes, including a complaint concerning pesticide-contaminated land leased by RT-Mart, anti-dumping investigation in connection with CSC's carbon steel plate, and transnational property litigation concerning an internationally-renowned scholar. Hung Ou Yang also has a wealth of experience in domestic and overseas litigation and negotiations.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.